It's a versatile phrase used to:
* Downplay a situation: "I forgot my phone, but pas grave, I can just use yours."
* Apologize casually: "Sorry I'm late, pas grave?"
* Acknowledge a minor inconvenience: "I spilled coffee on my shirt, pas grave, it's washable."
It's a more informal and relaxed way to say "no problem" than "ce n'est pas grave", which is more formal.